C4 C4 Wallet Security & Key Management

Question 1

What is a hierarchical deterministic (HD) wallet in the context of cryptocurrency?

Accepted Answer

A wallet that generates a tree of key pairs from a single seed phrase

Answer

An HD wallet uses a single seed phrase to deterministically generate a hierarchical tree of private/public key pairs, per BIP32.

Question 2

Which BIP standard introduced the 12- or 24-word mnemonic seed phrase for wallet backup?

Accepted Answer

BIP39

Answer

BIP39 defines the standard for generating mnemonic phrases (12 or 24 words) that encode a wallet's seed entropy.

Question 3

What is the primary security advantage of a hardware wallet over a software wallet?

Accepted Answer

Private keys never leave the secure element and are not exposed to internet-connected devices

Answer

Hardware wallets store private keys in a tamper-resistant secure element, ensuring keys are never exposed to a potentially compromised host computer.

Question 4

What does a cold wallet refer to in cryptocurrency key management?

Accepted Answer

A wallet stored on a device that is never connected to the internet

Answer

A cold wallet (cold storage) keeps private keys completely offline, dramatically reducing exposure to remote attacks.

Question 5

In a multisignature (multisig) wallet setup described as '2-of-3,' what is required to authorize a transaction?

Accepted Answer

Any 2 of the 3 private keys

Answer

A 2-of-3 multisig wallet requires any 2 out of 3 designated private keys to sign and authorize a transaction.

(C4) CryptoCurrency Certification Consortium Practice Test